It has been a positive year for the Australian sharemarket: Year-to-date it is up around 12%. However, Gross Domestic Product (GDP) which measures the output and performance of the economy, while still positive, is not as pleasing. Year-on-year Australian GDP is currently running at 2.3% which is below trend. There is however  grounds for optimism in the year ahead:

1.  Interest rates are currently at historical lows: Eventually, the savings – which mortgage holders are currently enjoying – will be put back into the economy in the form of spending.
2. The Australian dollar has fallen to around 90 cents, a 15% decline from earlier this year: A lower dollar helps many Australian companies become more competitive.
3. Household wealth is on the increase: For the past few years, Australians have been focused on debt reduction. Combine this with rising asset values from shares and property, and net wealth is growing.
4. Confidence has risen: Business and consumer data shows confidence levels are well up from the past few years.
5. Property values have stabilised. The property market crash some predicted has not eventuated. With signs of  recovery in housing construction and new home approvals, things are looking up.

Mining investment in Australia has peaked and it is now up to non-mining sectors to pick up the slack. For the sharemarket to continue strengthening its rise in 2014, company profits must continue to increase. Providing the above optimism remains, this could well be the case.

For share markets, the main danger is the reaction to a tapering of the US quantitative easing program: markets are almost certain to react negatively when a tapering program is announced. While an end to tapering would result in less cash in the system to find its way to equities, it should not affect the profitability of quality companies with reliable earnings: if anything it would present a good buying opportunity to investors.